2 years into the pandemic, more than 50% of Americans are credit card 'deadbeats' - and that's a good thing
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- A survey of 2,000 Americans by Insider found that more than 50% said they had no credit card debt.
- Credit card companies have a term for these users: "deadbeat," because they don't pay any interest.
- Many Americans used the pandemic lockdown of 2020 to pay off their credit card debt.
- This article is part of a series focused on millennial financial empowerment called Master Your Money.
Credit card debt is among the most expensive types of debt out there, and can quickly balloon if balances aren't paid down significantly every month. Fortunately, a majority of Americans say they have no credit card debt whatsoever, according to new data from Insider's Master Your Money Pulse Poll.
Of the more than 2,000 Americans surveyed, 53% said they were carrying no credit card balances. And among those with debt, over 30% said they were carrying less than $5,000 on their credit cards. That's good news for consumers, but not-so-good news for credit card companies.
Credit card companies have a term for these zero-balance users: "deadbeats." These so-called "deadbeat" users open rewards and cash-back credit cards to accrue points, miles, and other perks, but, because they pay their balances in full and on time every month, pay nothing in interest back to the companies. Indeed, Insider's poll found that the vast majority of credit card holders surveyed - over 33% - said they used credit cards "strategically," to get rewards and points.
But the tide may be turning as Americans adjust to life with COVID-19.
Americans' credit card balances are ticking back up
According to data from Experian, total US credit card debt dropped in 2020, for the first time in eight years, by a whopping $73 billion, or 9% of total credit card debt. That year, stuck at home with nothing to spend their money on and pandemic aid flowing, millions of Americans took the opportunity to pay down their credit card debt.
But by the end of June 2021, consumers had added $45.7 billion to their credit card debt load, according to WalletHub. What's more, WalletHub predicts that number could rise to $100 billion by the end of this year, wiping out pandemic gains. Some are getting back to their normal spending habits, including paying for travel and restaurant dining, while millions of others who lost their pandemic unemployment benefits earlier this year may be relying on credit cards to get by.
So all those "deadbeat" users? It's possible they'll be adding to their balances again soon.
How to pay off your credit card debt
If you're among the 47% of Americans carrying a credit card balance, there are a few strategies you can use to pay off your debt faster; experts say the "debt snowball" and "debt avalanche" approaches are both effective.
The strategy you choose will depend on your personality and what motivates you to reach a goal. With the debt avalanche, you put as much of your money as possible towards your highest-interest debt while paying the minimum on all your other balances. So if you have three credit cards with interest rates of 26%, 20%, and 14%, for example, you'd put the most towards your card with the 26% interest rate while paying the minimum on the rest. Once that top debt is paid off, you move on to the next-highest interest rate. This will save you money on interest in the long run.
With the debt snowball, you put as much money as possible towards your smallest balance while paying the minimum on the rest. Once that balance is paid off, you "snowball" that money and put it towards your next-smallest balance. The idea here is that seeing your balances disappear will motivate you to keep paying them down as aggressively as possible.
- Read more from Master Your Money:
- 3 steps a 27-year-old millennial took to build a $250,000 investing portfolio
- Thinking of investing for the first time? Experts say you should figure out your 'why' before putting a single dollar in the market
- 2 steps to take right now to build generational wealth for years to come
- How to buy a stock: A step-by-step guide to help you get started investing
from Business Insider https://ift.tt/3wDo1BV
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